Tuesday, September 12, 2006

Russia buys stake in Airbus' parent

In what looks to be a very symbiotic move, a state-owned Russian bank has snapped up 5% of EADS, Airbus' parent company. Apparantly many Russian airlines are looking to upgrade their fleets. Airbus could all but lock up this market with the help of the Russian government.

For EADS, this looks to be an admission that it needs help selling it's planes. Russian factories and labor--as cost cutting moves-- are being bandied about, as well. This would seem to be risky. Russian laborers are not highly regarded, and assembling aircraft components is a tricky business, as recent bottlenecks at Airbus (European workers) and Boeing (Asian workers) show.

What Russia's long-term plans are is unclear. Certainly it will be happy to twist some airline purchasing managers' arms and enjoy the profit in the short term. The article speculates on the long term.

European Aeronautic Defense & Space confirmed Monday that a Russian state-owned bank had acquired more than 5 percent of the French-German company, the first time that a Russian institution had acquired a significant holding in a Western aerospace manufacturer. The move brought intense speculation that the Russian government might seek to leverage the investment into a strategic partnership with the parent company of Airbus. [...]

"For Airbus, it makes a lot of sense to start hitting the Russian market, especially at a time when Aeroflot is trying to modernize its fleet," said Ashbourne [an analyst], referring to the Russian flag carrier.

Russia is also retooling its aircraft industry, backing out of sectors like wide- body passenger jets that directly compete with Airbus and its American rival, Boeing, while throwing government support behind regional and cargo airplanes. To do this, Moscow is consolidating a dozen factories and design shops into a single, state-owned holding, Unified Aircraft Corporation.

"It would be very reasonable if Vneshtorgbank transferred this stake to UAC," said Elena Sakhnova, an aerospace analyst at Deutsche UFG. "It will be a strategic investment; it will strengthen ties between UAC and EADS."

Recent comments from Russian officials indicate that Moscow sees the purchase as the first step toward a strategic partnership with Europe's largest aeronautics and defense contractor. The chief executive of MiG, the fighter jet maker, said Friday that Russia wanted eventually to double its stake in EADS to 10 percent. [...]

Meanwhile, some analysts noted that a strategic partnership in Russia could be just what Airbus, which is 80 percent owned by EADS, needed to stay competitive with Boeing. Airbus, which was created from a consortium of European state-controlled aerospace companies, has concentrated the production of aircraft components with European sub- contractors, which has kept production costs relatively high. Given the spiraling costs of the A380 and A350 projects, outsourcing production to a lower-cost country like Russia could be one solution.

"Their tendency to source from European companies has got to be questioned," said Nick Cunningham, an analyst at Panmure Gordon in London. He pointed to Boeing and the popular 787 Dreamliner - most of the design and construction of which is being done by subcontractors in China and hundreds of suppliers around the world. Airbus does outsource some assembly of its planes overseas, notably in China, but the design and manufacturing of aircraft components is still done primarily by European companies.

"It is a sharp nettle to grasp," Cunningham said. "But Airbus is at the stage where it needs to start thinking the unthinkable." [....]